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LNG project helps Oil Search record 34 per cent profit jump

Angela Macdonald-Smith

Oil Search recorded a better than expected 34 per cent jump in first half profit,boosted by the start-up of the $US19 billion ($20.4 billion) Papua New Guinea liquefied natural gas project, and has slightly upgraded full-year production guidance.

Profit for the six months to June 30 rose to $US152.5 million, beating the consensus of analyst estimates of $US137 million. Sales increased by 34 per cent to $US510 million.

June half profit in 2013 was $US113.5 million on revenues of $US381 million.

Oil Search, which has pledged it will soon start returning cash to shareholders, declared a first-half unfranked dividend of US2¢ per share, on a par with the same time a year ago.

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The ExxonMobil-run PNG LNG venture, which shipped its first cargo in May, is set to transform Oil Search's production and finances. The venture, in which Oil Search is Exxon's biggest partner is now producing at full capacity at both LNG trains, just three months after starting production.

"Production in the first half of 2014 was 68 per cent higher than in the same period of 2013, while both revenue and net profit increased by 34 per cent."

Mr Botten said Oil Search's output in the second half is expected to be "significantly higher" now PNG LNG is in full swing. Next year, in the plant's first full year of operation, PNG LNG is expected to add about 21 million barrels of oil equivalent to Oil Search's production, driving a quadrupling in output for the company from 2013 levels.

Oil Search high-graded its production guidance for the full year on the back of the PNG LNG performance, to 18 million-20 million boe from an earlier estimate of 17 million-20 million boe which had already been increased after the early start-up of the project. Of the total, PNG LNG is expected to account for as much as 13.1 million boe.

Mr Botten said shareholders would start to see the benefits from the PNG LNG start-up with an increase in the final dividend this year, which will be declared with the final results in February 2015..

"With completion in sight, it is the board's present intention to increased dividend payments commencing with the 2014 final dividend," he said. "The appropriate future balance between reinvestment of cash flows to finance high-returning growth opportunities and capital returns to shareholders is being analysed as part of the strategic review which is currently under way."

Oil Search is due to announce the results of its strategic review, which will consider how best to develop future projects and the exploration portfolio, in the December quarter. Mr Botten said early results from the work showed the company had "unprecedented opportunities" to build its business.

In the results statement Mr Botten outlined various avenues of work being pursued to drive an expansion of gas production, including an expansion of PNG LNG, and work to develop Oil Search's new investment in InterOil's Elk-Antelope project.

Oil Search is also exploring for oil in Kurdistan where it has made a discovery at the Taza 2 well, but Mr Botten revealed that the heightened security tensions in the region had forced it to suspend the well.